While most applications for life insurance policies require a medical examination and underwriting, more no-exam products are entering the market. What are the pros and cons of these no-exam life insurance policies? A recent Business 2 Community article by independent agent and LifeNet Insurance Solutions co-founder Lenny Robbins evaluated this trend with regards to the assessment, coverage and cost of no-exam policies.
Exams

Pros:

An obvious advantage of a no-exam life insurance policy is just that: your client does not need to endure a stranger’s pokes and prods. The client does not need to provide blood or urine samples or visit with a paramedic. Instead of being examined, the client must provide the insurance company with answers to a small set of qualifying questions about his or her health, in addition to the client’s age, height and weight. Also, it may entice clients to know that some companies offer guaranteed insurance conversion or renewal without an exam.

Cons:

The company offering the no-exam policy must compare the client’s questionnaire responses with the Medical Information Bureau, a pharmacy database and even a motor vehicle report. It is only if those answers are confirmed and are within the company’s underwriting guidelines that your client might be approved. Also, as your client ages, it becomes increasingly difficult to qualify without an exam, and the maximum death benefit he or she can receive will decline.
Coverage

Pros:

With a no-exam life insurance policy, coverage begins relatively quickly. When a medical exam is required, there are significant delays as the client decides to purchase the policy, undergoes the medical exam, and waits for the underwriter to approve the application. A no-exam policy, however, usually goes into effect soon after application.

Cons:

Most clients who are opting for no-exam life insurance are applying for less coverage and don’t have much flexibility when it comes to the structure of the policy. For example, your client may have a need for a critical illness rider that can’t be found with no-exam insurance. Also, high risks are declined for immediate coverage, but they can qualify for “graded death benefit” policies (no-exam policies that have a waiting period before the full benefits are in force).
Cost

Pros:

Costs associated with no-exam policies can be an advantage to families that only want limited or specific coverage and would otherwise opt for no insurance at all. Another advantage is the cost of time and energy saved by skipping the physical.

Cons:

Since the carrier is provided with much less medical data to accurately evaluate the client’s risk, the prices of no-exam coverage do tend to higher than insurance with full medical underwriting. The company is essentially taking on extra risk and will charge higher premiums to accommodate the discrepancy. Also, as previously stated, there is the option of high-risk life insurance with no exam, but there are the most expensive policies on the market.
As the market becomes more competitive, no-exam policy premiums are hopefully going to be less expensive. At the end of the day, these life insurance policies provide something that many clients are looking for, but they aren't for everybody. What are your thoughts on these pros and cons? Did the article miss something vital? Do you recommend this product to your clients?